Adverts by app - Dotcom looks to future
Opinion & Analysis
OPINION: Kim Dotcom forecasts the era of websites directly making money from display advertising will draw to a close in five to 10 years.
He says adverts will instead be dished up by "apps" on people's computers that will have access to much more information about their targets.
Dotcom made the prediction while defending the business model of his Megabox music service, a start-up he is developing in parallel with his new Mega cyber-locker venture.
Megabox will aim to cut out record labels by dealing direct with artists who want to offer their music online. Twenty programmers, mostly based in Portugal, are working on the service, which Dotcom hopes to launch by the end of July.
Some website owners, including Russell Brown of Public Address and Aardvark's Bruce Simpson, have expressed concern at Dotcom's plan to give people free access to music on Megabox in return for those people downloading an app, Megakey, that would replace some adverts on third-party websites with adverts dished up by Megabox.
The ad-substituting software would siphon off a portion of advertising income that would otherwise by earned by other web businesses, a tactic that some fear threatens to reduce diversity on the internet.
Unlike Mega, which Dotcom has branded "the privacy company", Megabox would also rely on people handing over more information about themselves to advertisers in return for the free music.
Dotcom doesn't expect Megabox to put record labels out of business overnight, but he nevertheless sees an opportunity to disintermediate an industry that he believes is distrusted by consumers and artists alike.
"I will rely in the beginning on working with artists that are free agents and once they experience what Megabox will do for them it is my belief word will spread quickly, and whenever a recording contract runs out an artist will think twice about renewing that without a clause that says they also have the right to sell their stuff direct on Megabox without ‘interference' from their record label," he says.
Dotcom seems to have the clout to attract at least a few big-name acts. But what of the ethics of Megakey?
Website owners counting on making a long-term living from traditional display advertising are kidding themselves anyway, Dotcom believes. At the moment, the average internet user surfs about 120 webpages a day and is exposed to about 400 ad impressions, 99.9 per cent of which are "wasted", he says.
Instead of being randomly flashed on screen, advertising will in future be dished up by "apps" that reside on users' computers, he says. "That is where you have the most control over the target of your advertising: you have the best information on who that person is, what kind of demographic they fit into, and you have the ability to time your advertising. Timing is key in advertising."
If Dotcom is right, Megakey could be one of several ad-serving applications competing for a space on users' computers and smartphones, in return for access to free content.
"There will be a battle of client applications that are going to feed users with advertising, and ‘ad replacement' is going to become a major trend." Dotcom says that is "unavoidable" and he knows of four other companies that are working on similar applications.
But isn't that a recipe for a fragmented internet, where people have to choose what content they want to be able to view based on which advertising platforms win the bid for their eyeballs? Or perhaps one where multiple apps fight it out between themselves for supremacy on users' computers in a technological arms race that eats into those computers' processing power and hard disc drive space?
That would be "totally unnatural", Dotcom says. Instead, he believes some sort of equilibrium will emerge, forged through partnerships between content companies and ad-service providers.
"I think more and more content sites will partner with application providers that can offer better targeted advertising, and in return a better return on investment for the advertiser.
"I don't want to hurt anybody," he says. "My goal is that users get access to free content legitimately and content creators get paid for their products."
How exactly would those partnerships form, given the multitude of different commercial interests?
Here, at last, Dotcom runs out of insights.
"That is the beauty of technology and internet. It will all come together in the end," he says.
The trouble is that when it comes to content and the internet, as Dotcom's own personal experience would seem to testify, it doesn't always all come together in the end. Not so far, anyway.
- © Fairfax NZ News